A Squeeze on the Global Middle Class
Bloomberg Businessweek|April 12, 2021
An estimated 150 million people slipped down the economic ladder in 2020, the first setback in almost three decades
By Cristina Lindblad

One of the most economically significant trends of the past few decades has been the emergence of a global middle class. The expectation that this cohort of consumers would continue to grow relentlessly, as rising incomes in developing countries lifted millions out of poverty each year, has been a central assumption in multinationals’ business plans and the portfolio strategies of professional investors.

You can now add that to the list of economic truths that have been upended by this pandemic. For the first time since the 1990s, the global middle class shrank last year, according to Pew Research Center estimates. About 150 million people tumbled down the economic ladder in 2020, with South Asia and sub-Saharan Africa seeing the biggest declines.

Defining the parameters of this global middle class has long been a contentious exercise. Pew, which has been researching the topic for more than a decade, labels as middle income those making from $10.01 to $20 a day, using data that smooth out differences in purchasing power across countries. In Pew’s analysis, there’s a separate upper-middle-income band made up of those earning $20.01 to $50 a day. (Note that $50 per day falls shy of what a minimum wage worker in the U.S. takes home pretax for an eight-hour day.) Others have opted for a more expansive $10 to $100 a day definition.

Taken together, Pew’s middle-income and upper-middle-income brackets encompass roughly 2.5 billion people—or a third of the world’s population. Buried inside these big numbers are many personal stories. Here we bring you four, from South Africa, Thailand, India, and Brazil. They’re tales of hard-won successes that evaporated overnight, along with well-paying jobs. Of once-accessible luxuries, like steak for dinner or home internet access, now out of reach.

Strivers face a far more uncertain future than in years past. In its latest World Economic Outlook, released in full on April 6, the International Monetary Fund predicts the global economy in 2024 will be 3% smaller than it would have been without the pandemic, largely because developing world governments have less room to spend their way to recovery, as the U.S. and Europe are doing.

The divergences are stark. India will end 2021 with a gross domestic product that’s 5.2% smaller than it would have been otherwise, according to forecasts by Bloomberg Economics. Indonesia’s output will be 9.2% smaller than its pre-crisis trend foretold. The U.S.? Just 1.6% smaller.

The global economy is “bifurcating,” says Carmen Reinhart, the World Bank’s chief economist, who cautions that a rebound in growth rates should not be mistaken for a lasting recovery. One big issue: Immunizations are proceeding far more slowly in poorer countries that have yet to gain the same access to vaccines as the rich world has.

But it goes further than that. Reinhart is concerned that in some countries governments may be forced to switch into austerity mode prematurely because they can’t shoulder their expanded debt loads. And while inflation is muted in the U.S. and Europe, in places such as Brazil food prices are soaring, leading central banks to tighten monetary policy prematurely. “This has been a very long year, and I think the damage has been underestimated,” she says. —Shawn Donnan

SOUTH AFRICA

Back to the Side Hustle

It was January 2020, and Mosima Kganyane was exulting in her newfound financial independence. The 26-year-old business administration graduate had landed a full-time job in Johannesburg and leased an apartment for 3,600 rand ($244) a month a few blocks from work so she could save on transportation costs.

Then, in early March, the country recorded its first Covid-19 infection and imposed a strict lockdown that would contribute to South Africa’s biggest economic contraction in a century. By July, Kganyane’s employer, one of the country’s largest clothing retailers, was facing bankruptcy. She was laid off, joining the 1.4 million South Africans who lost their jobs last year, pushing the official unemployment rate to a record 32.5%. With no income to cover rent and utility bills and unwilling to dip into her savings, Kganyane paid a $271 penalty to break her lease, and moved back into her family home.

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